Questions On Legality Of Revival Of Arbitral Proceedings To Be Adjudicated By Tribunal U/S 16 Of A&C Act: Delhi High Court

Facts:

The petitioners and Respondent No. 3 were in a business relationship. Respondent No. 1, an MSME unit, deals in privacy and sun protection industry manufacturing rails, curtain rods, roller blinds, etc. and supplied the same to the Petitioner. In the light of a dispute between the parties, Respondent No. 3 approached the Micro and Small Enterprises Facilitation Council (Respondent No. 2). Due to the non-cooperation of the parties, the conciliation proceedings failed, and Respondent No. 2 vide reference letters dated 13.06.2018 and 21.06.2018 referred the dispute to Respondent No. 1 under Section 18(3) of the MSMED Act. Respondent No. 1 issued letters to Respondent No. 3 directing them to file the SOC, which Respondent No. 3 failed to comply with. Respondent No. 1, relying upon Rule 3(6) of the Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2012 ('2012 Rules') vide letter dated 22.10.2018 and 27.10.2018, closed the arbitration proceedings due to non-filing of the SOC despite repeated reminders.

Respondent No. 1, vide letter dated 30.07.2019 and 03.08.2019, informed the petitioners that Respondent No. 3 had filed its SOC and directed them to file their Counter Claim, respectively. Aggrieved by the impugned letters, the Petitioner filed a petition under Article 226 challenging the revival of proceedings by Respondent No. 1.

Submissions:

The Petitioner made the following submissions:

• Section 18 of the MSMED Act, 2006 stipulates a timeline of 90 days for completion of every reference made by the MSME Facilitation Council. Therefore, the mandate given to Respondent No. 1 by the MSME Facilitation Council was terminated via letters dated 22.10.2018 and 27.10.2018. Furthermore, the revival of arbitral proceedings without any fresh reference contradicts the MSMED Act's provisions.
• Respondent No. 1 has no jurisdiction to revive the proceedings automatically without a request. The Arbitral Tribunal should have adjudicated upon the same if a request was made by Respondent No. 3.
• As the reference was acted upon after 01.07.2018, the Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2018 (hereinafter, '2018 rules') apply to the arbitration proceedings. The '2018 rules' do not contain any provision pertaining to the revival of the proceedings.

The Respondent No. 1 made the following submissions:

• The '2018 rules' do not contain provisions concerning the revival of proceedings or closure of the file. Therefore, the '2012 rules' would apply to these proceedings, as evident from the latter dated 22.10.2018, vide which the proceedings were closed.
• The 90-day timeline under the MSMED Act is for deciding a reference and not for completing the arbitral proceedings. Furthermore, Section 25 of the A&C Act would not be applied, as it requires the constitution of the Arbitral Tribunal. Respondent No. 1 was exercising its pre-arbitration administrative function vide Rule 3.6 of the '2012 rules'.

The Respondent No. 3 made the following submissions:

• The issue raised in the instant Writ Petition can be raised before the Arbitral Tribunal u/s 16 of the A&C Act as the proceedings have been revived. Furthermore, the Arbitral Tribunal has to adjudicate the issues pertaining to proceedings, reference or jurisdiction.
• The reference was received and registered by Respondent No. 1 on 21.06.2018, and the same was noted in the communication dated 10.09.2018. The '2018 rules' were effective from 01.07.2018.

Analysis of the Court:

The bench observed that the three-month time limit under Section 18 of the MSMED Act pertains to the reference to the Facilitation Council and not the arbitration. Section 18(3) of the Act states that once a reference is made to arbitration, the provisions of the A&C Act would apply to the dispute. A Co-ordinate Bench in Indian Highways Management Company Limited v. Mukesh & Associates (2021) took the same view wherein it was observed that 'reference' in Section 18(5) has to be construed as a reference to the facilitation council. Furthermore, the timeline ascribed under Section 18(5) of the Act is directory and not mandatory, unlike the timeline ascribed under Section 29A of the A&C. Unlike Section 18(5), non-adherence to the prescribed time limit under Section 29A would result in the termination of the mandate of the arbitrator. The Calcutta High Court, in Porel Dass Water & Effluent Control (P) Ltd. v. W.B. Power (2024), arrived at a similar conclusion.

The questions about the legality of the revival of proceedings and the jurisdiction of the Tribunal are to be adjudicated by the Arbitral Tribunal under section 16 of the A&C Act.

The Court then noted that it would be open to the Petitioner to raise all questions concerning the maintainability of proceedings and jurisdiction of the Tribunal, which could be adjudicated as a preliminary issue.